Oil sinks back below $40

Crude oil tumbled below $40 a barrel on Wednesday for the first time since August.

It's the latest sign that the world still has more oil than it needs despite production cuts in the U.S. This is great news for American drivers, many of whom will soon be enjoying gasoline prices below $2-a-gallon.

Oil dropped to as low as $39.91 a barrel on Wednesday. That's the cheapest price since the final week of August when market mayhem rocked Wall Street amid fears about China's economic slowdown. Oil settled at $40.75, but it's still down 13% this month.

Everything was selling off in August. This time, oil is falling, but the stock market overall posted solid gains Wednesday and is about flat in November. CNNMoney's Fear & Greed Index is firmly in "neutral" mode and last week it even flashed "greed."

2.) U.S. drillers are resilient

Yes, some cracks have begun to emerge in the U.S. energy boom. American oil production actually decreased significantly from August to September to a one-year low.

But today's oil drillers are nimble, allowing them to quickly ramp up production once prices rise. Baker Hughes said the number of U.S. oil rigs increased slightly last week -- the first rise in three months. That's negative for oil prices because the massive growth in American oil production is what caused prices to crash in the first place. Few predicted quite this much oil supply.

3.) The dollar keeps getting stronger

The U.S. dollar continues to strengthen as investors bet the Federal Reserve is finally ready to raise interest rates. So far this month the dollar has soared 3% against a basket of currencies. It's also nearing parity with the euro.

All of that is bad news for oil because a stronger dollar makes commodities like crude that are priced in dollars more expensive to overseas buyers,so they tend to buy even less.

Cheap oil fallout

The latest slide in oil prices could bring smiles to U.S. consumers as they start shopping for the holidays.

But it will also create headaches for oil companies like Chevron (CVX)and ExxonMobil(XOM). Shares of companies in the S&P 500 energy sector have tumbled 16% so far this year, making them the worst performers.

Energy companies that loaded up on debt before oil prices crashed run the risk of defaulting on their loans if they can't make money in the current environment.